Consolidation is occurring in the biodiesel industry, as independently owned plants look for a way to survive the tight margins and lack of profitability that continue to plague the business of manufacturing this renewable fuel.
Renewable Energy Group of Ames announced in a press release May 12 that it has entered into agreements to buy two biodiesel producers in Iowa and one in Illinois. The plants include Central Iowa Energy at Newton and Western Iowa Energy at Wall Lake. The third plant, Blackhawk Biofuels, is at Danville, Illinois.
The three plants will get REG stock in exchange for ownership of the facilities. The deal is worth $165 million to $175 million, says Jeff Stroburg, REG's chairman and chief executive. That's based on the original value of the plants and the debt they owe. The combined company could produce up to 150 million gallons of biodiesel per year.
Shareholders of each plant will vote on the deal
The Wall Lake and Newton facilities can each produce 30 million gallons per year, while the Danville plant can produce 45 million gallons per year. Thus, REG is acquiring an additional 105 million gallons of capacity to add to its current capacity. If the consolidation takes place as planned, REG would be the largest biodiesel producer in the country.
"We are excited about the opportunity to work more closely with these three plants," says Stroburg. "The purchase agreement was signed and finalized this past weekend and announced May 11. We will now begin the process of working through the government agencies that we need to get approval from, the Security and Exchange Commission as well as the Federal Trade Commission. Once we get approval, and the shareholders of each plant vote, assuming they vote in favor of it, that will complete the consolidation—which we hope will be sometime in late summer or early fall."
Will the individuals who've invested be bought out?
A number of farmers and other local investors bought stock in these plants, which were built and began producing biodiesel during the past several years. For example, the Central Iowa Energy at Newton has more than 500 investors (members) so does Western Iowa Energy at Wall Lake. Does the purchase agreement mean that the investors in the individual plants will be bought out?
"What we are proposing in this purchase agreement is an exchange of stock," answers Stroburg. "So there will be no cash exchange but the people who own stock in the plants will get REG Group stock in exchange for their stock in the Newton, Wall Lake or Blackhawk facilities."
The additional 105 million gallons per year of wholly-owned production capacity would allow the combined entity to better position itself to meet anticipated demand from the petroleum industry's distillate fuel market, he says.
Four firms would be consolidated in new company
If this proposal is accepted by the shareholders and other investors, ownership of the operations of all four companies will be consolidated in a new holding company to be named Renewable Energy Group, Inc. The consolidated firm will be owned by the current members of the three acquired companies and the current REG investors. REG's current investors include Bunge North America, ED&F Man, Natural Gas Partners, NGP Energy Technology Partners, US Renewables Group (USRG) and West Central Cooperative. The transaction is subject to approvals by the shareholders of all four companies and to other conditions, including the customary regulatory approvals.
REG's Stroburg cites demand by major petroleum distributors and oil refiners as a key factor in the decision to move forward with plant consolidation. "As the Renewable Fuels Standard takes effect and our nation moves toward energy reform, the distillate market is demanding technical expertise, dependable supply, more efficient distribution and creative pricing options from major biodiesel partners," he says. Under the 2007 Energy Independence and Security Act, the RFS calls for 500 million gallons of domestic biodiesel consumption ramping up to 1 billion biodiesel gallons in 2012.
Proposed consolidation offers advantages
"We believe this proposed consolidation brings greater economies of scale, streamlined central management of complex logistics and decision-making processes, and enhanced risk-management opportunities," says Daniel Oh, REG's president and chief operating officer. "By more efficiently managing our business and strengthening distribution channels, REG will continue to partner with obligated parties and reduce our nation's reliance on foreign oil.
"Consolidating these three multiple-feedstock facilities under the ownership of Renewable Energy Group will offer technology advantages as these sites utilize a variety of raw materials like soybean oil, fats, corn oil, canola oil and recycled restaurant grease to produce large volumes of high-quality biodiesel which are then marketed through our national infrastructure system," Oh explains.
Benefits for shareholders, many of whom are farmers
Bill Horan, chairman of Western Iowa Energy's board of directors states, "Although our facility is currently well-positioned compared to other biodiesel manufacturers in the U.S. due to its ability to process multiple feedstocks, this proposed consolidation offers our members the opportunity to diversify their biodiesel investments while continuing and expanding our current relationship with REG." Horan adds, "Western Iowa Energy's board has carefully considered the future of our facility and believes the REG consolidation proposal is the best direction for returning value to our members."
Central Iowa Energy's board chairman, Jim Johnston, says, "Given current industry consolidation and production economics, it is difficult for stand-alone facilities like our plant to succeed on their own in the 67 billion-gallon distillate market."
In March, Blackhawk Biofuels announced upgrades and enhanced production capabilities to use a wider variety of feedstocks. "The Blackhawk Biofuels board believes that a merger with REG is the best option for Blackhawk in the current challenging environment," says Ron Mapes, chairman of Blackhawk Biofuels.
About Renewable Energy Group: Renewable Energy Group leads the biodiesel industry by offering a complete biodiesel solution. Committed to redefining quality, Renewable Energy Group markets REG-9000 biodiesel, which exceeds ASTM quality specifications, through existing nationwide diesel infrastructure, including more than 20 terminal locations.
REG-9000 biodiesel is marketed through large petroleum companies and fuel distributors, and is utilized by on-highway fleets, municipalities, and power generator, mining, military, home heating and agriculture applications.
REG-9000 biodiesel is produced by REG network production facilities consisting of state-of-the-art, proprietary multiple-feedstock technology. Renewable Energy Group offers procurement and risk management, production operations, and technology services in addition to alternative feedstock research and commercialization. To learn more about Renewable Energy Group, Inc. visit www.regfuel.com.
About Western Iowa Energy, LLC: Western Iowa Energy owns a commercial scale, state-of-the-art biodiesel production facility just south of Wall Lake, Iowa. The multiple-feedstock production facility can use soybean oil, other vegetable oils and animal fats to manufacture approximately 30 million gallons of high quality biodiesel each year. The facility employs 28 full-time, highly skilled employees. The WIE plant is located on a 38.3-acre site that is one mile south of the city of Wall Lake with access to the Iowa Interstate railroad and the Canadian National railroad.
To learn more of Western Iowa Energy LLC, visit www.westerniowaenergy.com. Also, you can find information about Western Iowa Energy in the documents filed with the SEC by Western Iowa Energy at SEC's Web site at www.sec.gov.
About Central Iowa Energy, LLC: Central Iowa Energy owns a commercial scale, state-of-the-art biodiesel production facility just north of Newton, Iowa. The multiple-feedstock production facility can use soybean oil, other vegetable oils and animal fats to manufacture approximately 30 million gallons of high quality biodiesel each year. The facility employs 22 full-time, highly skilled employees. The Central Iowa Energy facility, currently about 32 acres with additional acreage available for expansion, is located in Jasper County, Iowa. This site sits on the Iowa Interstate Railroad and is located approximately five miles from U.S. Interstate 80. Biodiesel production began April 2007.
To learn more about Central Iowa Energy visit www.centraliowaenergy.com. Also, you can find information about Central Iowa Energy in the documents filed with the SEC by Central Iowa Energy at SEC's Web site at www.sec.gov.
About Blackhawk Biofuels, LLC: Blackhawk Biofuels owns a commercial scale, state-of-the-art biodiesel production facility in Danville, Ill. The multiple-feedstock production facility can use vegetable oils, such as soybean oil, and fats to manufacture approximately 45 million gallons of high quality biodiesel each year. Twenty-four full-time, highly skilled positions were created with the construction completion at this facility. The Blackhawk Biofuels facility is adjacent to a soybean oil processing facility operated by Bunge North America. Biodiesel production began November 2008.